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Opinion - SOE governance alarm bells ring

2023-03-23  Correspondent

Opinion - SOE governance alarm bells ring

Dr Vincent M Mwange


Numerous scholarly and corporate practitioners have written articles on the poor performance of State-owned enterprises in Namibia. Suggestions have been offered on how to improve the performance of the SOEs, but the performance of the SOEs continues to deteriorate.  

Namibia has about 98 SOEs, that previously fell under the Ministry of Public Enterprises, but are now a department in the ministry of finance. SOEs were essentially created to implement the economic policies of the government. The primary objective of SOEs is to serve the people and help in creating an environment of industrial activity. To date, it is hard to come up with concrete evidence to show the achievement of this objective.

The corporate governance of the SOEs in Namibia, is befuddled by a myriad of factors, among them, is the separation of power and control of the SOEs. Ideally, the shareholder (government), appoints boards of directors, to run the SOEs on their behalf. The board of directors, in turn, appoints the executive director or officer to manage the entity. Although shareholders elect directors to govern the company, shareholders do not have the right to be involved in the day-to-day management of the business, nor to inspect company records or management accounts.

The main role of the board of directors is to perform the duties of strategic planning and oversight. They are the backbone of successful business planning. The role of the board of directors is a highly important one because they are the executive board of a corporation that makes the major decisions regarding the way the business is run. 

These duties can only be implemented and achieved by a board of directors that has a composition that incorporates all of the necessary skills and abilities to make sound decisions for the company. Sadly, in recent years, we have seen that members of the boards are not appointed on merit, but on who you know. Therefore, in many cases, in the performance of their duties, the board of directors have ended up colliding with executive directors/CEOs of the SOEs, who are knowledgeable of the

Over the years we have witnessed SOEs being criticised for corruption, nepotism, mismanagement of public resources, abuse of power and government recycling the same inept board members. This has led to the failure of these SOEs to meet their objectives, yet government continues to bail them out!

There are numerous examples where corporate governance of the SOE is alarming. How does one explain the crisis at TransNamib, where the experienced and knowledgeable CEO is abandoning the SOE, but is immediately appointed by a South African Company as its new CEO? Surely, the members of the board of directors must give an unbiased and comprehensive report to the shareholders on the governance of TransNamib.

Another example is the unending corporate governance saga at the Namibia Institute of Public Administration (Nipam), where the Nipam governing council chairperson announced the suspension of the executive director (ED) of the SOE on Friday 17 March 2023.

The reasons for the suspension of the ED were not made public. However, what is at play is the interference of the board of directors in the day-to-day activities of Nipam. This unfolding corporate governance issue at Nipam is endemic in most SOEs in Namibia.

As mentioned earlier, boards of directors are the bedrock of good corporate governance in a company. 

It is for this reason that the failure of the SOE board to attend a scheduled training tells us about the individuals that are selected to be members of the board of directors for our SOEs.

It is a good corporate governance principle for new board members to undergo induction training. The training was to expose them to their legal rights and responsibilities in the performance of their duties.

Additionally, the training would have familiarised them with the Public Enterprises Governance Act 2019 (Act No 1 of 2019), as agents of the shareholders. The duty of trust, or fiduciary duty, as one of their duties - requires the board of directors to act with integrity. This duty that is entrusted by the shareholders to the board of directors has not been honoured. Therefore, the shareholders (government) should replace these individuals with people that are committed to achieving the objectives of the SOEs.

Similarly, the board of directors of another SOE, the National Fishing Corporation of Namibia (Fishcor) were not aware of key appointments and financial decisions are taken by the corporation over the years. Again, it is the duty of the board of directors to regularly update the shareholders about the activities of the company. In other jurisdictions, a board of directors can be personally liable for the company’s debt if they knew that the company was insolvent and allowed it to continue to trade. It is suggested that the shareholder (government) should ensure that the board of directors participate in annual self-evaluations to identify their strengths and weaknesses. These evaluations should be submitted to the shareholders for scrutiny.

We have the Corporate Governance Code for Namibia (NamCode) that confirms the role of the board as the focal point for corporate governance. The board of directors are the basis for good corporate governance. Therefore, a capable and skilled board is likely to improve the governance standard of a company. 

The NamCode is based on King III Report and guides all Namibian corporate entities on various governance-related aspects, including Ethical leadership and corporate citizenship, Compliance with laws, codes, rules and standards. Nevertheless, the SOEs are not bound by the NamCode. This is a serious good corporate governance challenge that requires urgent government attention.

The compliance by the SOEs to the NamCode might ensure good corporate governance and the success of these corporations. For instance, accountability - when corporations hit bumps in the road, all fingers typically point back to the board of directors. Fiduciary - board directors must be willing to act quickly and responsibly when they need to take action to comply with fiduciary responsibilities or to uphold good governance standards in the SOEs.

Poor governance in the SOEs in Namibia has put these parastatals at risk of commercial failure, and financial and legal problems for agents/directors. Additionally, poor corporate governance has allowed SOEs to lose sight of their purpose and their responsibilities to their owners and people who benefit from its success.

2023-03-23  Correspondent

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